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Optimal combination of currency strategies

Ricardo Laborda

The North American Journal of Economics and Finance, 2018, vol. 43, issue C, 129-140

Abstract: This paper handles the portfolio problem of combining optimally different currency strategies in the presence of return predictability. After transaction costs, our in-sample and out-of-sample empirical results confirm the relevance of considering state variables like FX volatility and the CRB industrial return or yield curve related variables to accurately time the currency carry trade and the dollar carry trade. An optimal combination of currency strategies and the use of risk management of the optimal portfolios also allows the investor to increase their Sharpe ratio and certainty equivalent, compared to an optimal portfolio of traditional assets.

Keywords: Currency style investing; Optimal combination; Currency predictability (search for similar items in EconPapers)
JEL-codes: G11 G15 F31 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecofin:v:43:y:2018:i:c:p:129-140